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Market Outlook – What are the prospects for the financial sector in 2013?

Market Outlook – What are the prospects for the financial sector in 2013?

RBC reported a fourth quarter profit $1.25 per share, up 22%, on increase business loan demand. The other major Canadian banks will report next week. We are looking for more good news after a benign quarter. Assuming the US government takes at least some steps to avert the Fiscal Cliff, moderate growth in the US should translate into moderate growth here in Canada. Our labour market is growing slowly, and wages are increasing slowly, an environment in which banks can do reasonably well. However, that is offset by the fact that the housing market in Canada is softening and the Canadian consumer is stretched. Given sluggish growth, the Bank of Canada is likely to continue its low rate policy.

In this environment, banks are likely to focus on operational issues within the retail, commercial and corporate banking, as well as their wealth management units. Cost control will likely be the mantra in 2013. Our well managed banks could see modest profit growth and perhaps even dividend increases.